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April 13, 2009
Great ideas from the 'big picture' angle. As individual CUs we run the risk of getting caught up in the 'my turf' mentality. If we profess cooperation we need to approach these times from the big picture perspective. I agree we should leverage our strong performance to shape our own future rather than showing up as just another group looking for handouts.
Chip, this has been the question at our CU since the first word of possible NCUSIF impairmant: they can go to the CLF that has authority for $41B, why go back to Congress hat in hand to ask for money? CUs are losing thier most important ally: congressional confidence in them.
It would be great if there were, in fact, an existing way to solve the capital and liquidity needs of corporates, but the CLF is not it. Both federal law and Section 725.1 of the NCUA Regulations say that the purpose of the CLF is to improve the general financial stability of "credit unions" by meeting their "liquidity needs". "Credit unions" means natural person credit unions and "liquidity needs" means "the needs of credit unions primarily serving natural persons". That was the primary reason the SIP program was created; it is nothing more than a way to work around the limitations in the CLF. Are you recommending the same sort of expedient?
Any time you go to Congress with a piece of legislation, you are asking for trouble. Remember HR 1151 (The Credit Union Membership Access Act)? It started out as a simple two page bill and Congress turned it into a 60+ page bill that got into all kinds of issues unrelated to the field of membership.
Chip, I've heard for several weeks that the reason we cannot look to the CLF is the fact that the CLF can only be used for liquidity needs. Has something changed?
Not only does your suggestion make sense Chip, an affordable option I think most CUs would accept it would keep many of us in the business of helping members in this difficult economic time instead of trying to recover from the large write-offs. DDD
Dennis D Degenhardt
In response to comments #4 and #6:
The rules of the CLF are contained in part 725. The following are quotes from the rule:
725.22. Advances to Insurance Organizations
(a)"In accordance with polices established by the NCUA board, the Facility may advance funds to a State credit union share or deposit insurance corporation, guaranty credit union, guaranty association, or similar organization."
The NCUSIF is an authorized to borrow under this authority-see NCUSIF authority under
Title II below
. Note also sub para (4) that "the funds advanced shall not be relent at an interest rate exceeding that imposed by the facility"--that is, there is no markup permitted.
Under liquidity needs, definition number 725.2(i)(3) reads as follows: "protracted adjustment credit available in the event of unusual or emergency circumstances of a longer term nature resulting from national, regional or local difficulties."
I know of no one who believes this is not the situation today or has been for sometime.
Finally under 725.23: Other Advances
(a) The NCUA Board may authorize extensions of credit to members of the Facility for purposes other than liquidity needs if the NCUA Board, the board of governors of the Federal Reserve System and the Secretary of the Treasury concur that such extensions of credit are in the national economic interest.
Certainly if NCUA is approaching Congress with this need, then the Federal Agencies would support this direct, and immediate, alternative.
The following is from the enumerated powers for the NCUSIF from the Federal Credit Union Act:
TITLE II—SHARE INSURANCE
1783. National Credit Union Share Insurance Fund Subsection (f) Authorization for fund to borrow from Central Liquidity Facility.
In addition to the authority to borrow from the Secretary of the Treasury provided in subsection (d), if in the judgment of the Board, a loan to the fund is required at any time for carrying out the purposes of this title, the fund is authorized to borrow from the National Credit Union Administration Central Liquidity Facility.
The above are not new interpretations or authorities. In the CLF's 1982
, page 3, there is a discussion of lending directly to corporate credit unions as agent members. This was done in response to the Penn Square Bank failure. One year later in the CLF's 1983
, page 7, there is a discussion of the protracted credit loans that were made in the period 1980-1982. Some of these loans had maturities as long as four years.
As discussed in the article, $6 billion in liquidity is easily available from credit unions themselves, so borrowing from the CLF is not the only option. There is no need to go to Congress for liquidity. And as described in the article, if the rationale is to match the expenses as incurred, NCUA has that option today. No other governmental, private sector or academic institution has yet to develop a model that can result in an estimate of future credit losses so specific that a holder is able or required to book and expense those losses today. Credit unions can deliver capital, in the form of insurance premiums, as needed to match future losses as incurred.
That is just one more reason why the PIMCO numbers and the CUSIP's must be released so that independent judgments can be formed for open discussion about the best way for the industry to manage the losses that will be incurred from these investments.
Well, that's what you get for challenging someone who's bio says he was formerly President of the CLF! This is just proof positive that all the deceptive info out there being fed by the trades and NCUA is bogus. We have other much more viable and desirable options! It is just that CUNA, NAFCU, and NCUA together have decided on their approach and don't want us to understand that they've screwed us!!!!!
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